Fisher Effect Nominal interest rate,/ ■Real interest rate,r=i-π ·The Fisher equation:i=r+π Chap 3:S=I determines r. Hence,an increase in causes an equal increase in / This one-for-one relationship is called the Fisher effect. CHAPTER 7 Money and Inflation slide 26CHAPTER 7 Money and Inflation slide 26 Fisher Effect ▪ Nominal interest rate, i ▪ Real interest rate, r = i −  ▪ The Fisher equation: i = r +  ▪ Chap 3: S = I determines r . ▪ Hence, an increase in  causes an equal increase in i. ▪ This one-for-one relationship is called the Fisher effect